To encourage Malaysians to have better quality of life as well as to ease the burden of owning a house, the Malaysian government has made provisions in Budget 2008 to allow the monthly withdrawals of the balance in Account II for home loan repayment.

In other words, Employee Provident Fund (EPF) contributors will now be able to make use of their Account II balances to assist them in the Monthly Home Mortgage repayments. For example, an average wage earner earning RM3,000 a month will be able to use his EPF to contribute an additional RM207 a month towards his home mortgage repayments.

To illustrate the above point further, here’s a breakdown on the calculations

Monthly Wage = RM3,000

Monthly EPF Contributions
a. Contribution from Employee (11%) = RM330
b. Contribution from Employer (12%) = RM360

Total Monthly Contribution to EPF (a.+b) = RM690

Hence, Monthly Account II allocation is RM207 (30% of the total monthly contributions)

As such, new and current home owners stand to benefit as follows:

• Qualifying for a higher Home Loan Quantum as the qualifying monthly Mortgage repayment is RM1,207 instead of RM1,000 (Based on the rule that monthly mortgage repayments should <1/3 of your monthly salary)

• Ability to purchase a property at a much higher price range. Current home owners may consider trading their current home for a bigger one

• Or for current home owners on Flexible Home Loan, using the monthly EPF witdrawals to boost the monthly repayments translates to lower interest charges and overall lower cost of ownership.

On the surface, this policy looks like another win-win policy for the people and the real estate industry. However the implementation of this policy from the EPF statutory body leaves a lot to yearn for. Read more »

What’s next after SnP? Well the situation varies depending on whether or not the property you have bought is under construction or is already completed. In this article I will only cover property that is under development. For fully completed properties, usually upon signing SnP, the previous owner will hand over the keys to the unit to you once the property is fully paid up in cash or by the bank.

For property under construction, (provided you are taking a bank loan), the developer will write in to your bank at certain intervals to request for a drawdown of the Loan amount. Below is a table of the allowed schedular drawdowns as stated in your generic SnP agreements.

Note that the above schedule only applies to Landed properties under construction. To counter check the developer, a third party architect is hired to audit the work that has been done on your property. Upon obtaining the required certification from the architects, the developer will send a letter to the bank, your Loan Lawyer and yourself requesting for the drawdowns as per the table above.

Lastly, Read more »

Hi Everyone,

Apologize for the late release of this article. I’ve been overseas for the past month on a business trip. Anywayz here’s an article to keep my Key learning’s series going

•  Lesson 2.2 - Bank Loan Agreement

Bank loan agreement is an agreement between the bank and you. Basically it can consists up to 3 different agreements namely

1. Facility Agreement
2. Power Of Attorney
3. Deed Of Assignment / Title Charge

Firstly the Facility Agreement  is an agreement made between you (the borrower) and the bank. This agreement basically consists of all the terms and conditions which has been set forth in the Letter of offer. Do note that different banks have different Facility Agreements. Your Lawyers would need to purchase this document from the bank.

Secondly, Deed Of Assignment is a temporary agreement made between you and the bank to ”Assign” the property to the bank as a guarantee. Deed of Assignment is only required for properties that has yet to obtain their individual land titles. Upon obtaining the land title for the property, another agreement will be executed to charge the Land Title to the bank.

Lastly, Power of Attorney, is an agreement between you (the Donor) and the Bank to appoint the Bank’s panel of lawyers to look after your rights as a borrower as well as the banks rights in the event of a dispute. Among the tenets of the agrreement is a clause for the Attorney to sell away the prperty in the event of a default.

The cost of the agreements varies with the loan quantum ie the higher your loan amount the more you will need to fork out to pay the lawyers :) 

Rule of thumb, - Estimated Legal Fees (percentage off the Loan Quantum)

• 1% of the Loan Quantum for the Facility Agreement
• 0.1% for Deed Of Assignment 
• 0.1% for Power of Attorney.

Lastly, you will need to factor in the cost of Stamping Duty. For Loan agreements, the stamping duty is set at 0.5% * Loan Quntum.

Let me conclude my article with an example. For a Loan Quantum of RM 300,000, here’s a breakdown of the estimated legal fees

• Facility Agreement  (1% * RM300, 000)               ~RM3000
• Deed of Assignment (0.1%* RM300, 000)           ~RM  300
• Power of Attorney  (0.1% * RM300, 000)            ~RM  300
• Stamp Duty           (0.5% * RM300, 000)            ~RM1500

Total costs = RM5100

Tip :- Always remember to Read more »

In short, this is the proposed schedule of activities, based on our experience:

1. Search for a good property at a good location

2. Choose a good unit, taking into consideration the feng shui, the direction the house is facing, the surrounding things to take note of, etc. I’ll cover that in another post.

3. Put down a booking fee for the unit.

4. Shop for a good home loan. Go to or call up banks. The trick is to call the banks and get the banker to go to your house for a presentation. During the presentation, ask everything you need to know, including the penalties and perks.

5.  Choose either flexible or conventional plan. Difference is the interest rate and the flexibility. More details should be covered in another post. Personally, we prefer flexible loans, because we factor in the possibility of us earning much more in the future and are able to pay off our housing loan much faster.

6. Once you have found a good home loan deal, get the banker to generate an offer letter. The offer letter will be ready in a few days time. Sign it, in order to lock in the offer. If not, the offer will lapse after the limited period. Check with the banker because the expiry date would be different for different banks.

7. Once you have decided on which bank to take the home loan from, find out the bank’s panel of lawyers. Check if any of the lawyers is also on the panel of lawyers doing up the Sales and Purchase Agreement.

The objective is to have one lawyer handling both the loan documentation and the Sales and Purchase Agreement. Why? So that you can save on lawyer fees, which could range from hundreds to thousands, based on discounts given. Another advantage is that they can get the documentation up faster too, minimizing delays in payments etc, without having to deal with another party.

As for the shopping for home loans from banks, I would leave it to another post.

8. Once you have found the lawyer to do both loan and Sales and Purchase Agreement documentations, set a date to sign the documentations. Could be done on the same day or different days. If it is done on the same day, then it saves you time and hassle.

9.  Sign the documents, pay a deposit for the lawyer fees and wait for the lawyers to get back to you with the stamped documents. Once all the documents are in place, then only you pay the lawyer in full.

10. After that, it is time to anticipate the first draw down,  which also means, time to start paying the home mortgage. Usually the developer draws money from the bank in stages, according to a schedule given in the Sales and Purchase Agreement. Will put up a sample schedule in another post.

11. So, based on the schedule, you can plan your finances properly, in order to minimise the amount of interest you have to pay. Oh, btw, this only applies to flexible loans.

Simple isn’t it? If you practice this often enough, it will become like a second nature to you. Buying a house/property will be like buying rice. Ahh.. how good!

So what after the signing of the Sales and Purchase Agreement? Time to find ways to finance it, right?

No! Utterly wrong! Though there’s no hard and fast rules, but this is one mistake you could make, based on our experience. And this is THE mistake we almost committed.

Why?

Because by the time you have signed the Sales and Purchase Agreement, the clock has started ticking. You have limited time (how much, partner please help me to fill in) to get the method of financing in order.

And if you do not manage to secure a loan from any banks and when the first drawdown, meaning the developer is asking for money, you are liable to pay the interest of usually (how much again partner… hehee).

Usually, if you have a clean financial record and have a good relationship with all banks, the likelihood of you not being able to secure a loan is rather low.

Let me share with you the mistake we made.

After putting down the booking fee for the house, we went shopping for home loans, which is a correct thing to do. But the uncertainty we had was that we did not know when is the signing of the Sales and Purchase Agreement, as the developer was yet to receive their developer’s licence.

It was about 5 months wait, before we received a call asking us to sign the Sales and Purchase Agreement in 2 weeks’ time.

What went wrong was that, during the 5 months, after the initial hype of looking for a home loan and finally narrowing down to two banks, we did not sign any offer letter, despite one bank having generated one for us. We did not know that the offer letter will lapse if we do not sign it and thus making the offer invalid.

And so, after the lapse, we still continued to wait for news on the Sales and Purchase Agreement signing.

What we should have done was that, during that period of time, continue to monitor the banks for better offer on home loans and promotions given out. At the same time, find out the panel lawyers for both the banks and the developer. This information will come in handy when you need to decide on which lawyer to take.

Even though the uncertainty of a date for the signing of SnP was a challenge, we should have still decided on the bank we want to take home loan from, and then to generate the offer letter and sign it, meaning locking in the competitive interest rates. This way, makes it easier for you to decide on the lawyers.

Choose a lawyer who can handle both the SnP and the loan documentation, meaning the lawyer can represent both the developer and the bank. There’s always the option of using an outside lawyer, which could be to your advantage as well. More analysis on this in the coming posts.

So, our advise, based on our own experience (disclaimer: use this with your own discretion. Owner of the blog is not responsible to any loss incurred from using this advice.) to be on the safe side, to start shopping for home loans from all banks from the day you put down the booking fee.

Better still, secure an offer letter from the bank, a letter which states how much is the interest rate the bank is willing to offer to you, based on the buying price and the type of property.

But, be aware that if you do not sign the offer letter, it will lapse after a few days to 2 weeks, depending on banks. And once it lapses, you would have to submit an application for loan all over again through the banker.

And the banker would have to get approval from the headquarters again. The disadvantage to this is that you have to endure the paper work and getting documents in order again - hassle and inconvenience.

But again, do take note also that the rates on home loans are very competitive. The rates offered by a bank can vary within months, maybe even weeks! One advantage of securing a deal after the signing of Sales and Purchase Agreement is that you might get better rates for your home loan.

And yet again, there’s the risk of time running out. So you have to weigh the pros and cons.

Look out for the nutshell steps to what you should do when you buy a new house in the next post.

In Malaysia today, you can opt to finance your dream home using various methods. Among the methods mentioned were to take a loan from the various banks in Malaysia (both local and foreign banks). I’ll like to take the opportunity today to talk about flexible home loans.

The other day, I was talking to a few fellow bankers to learn about the hype around the new Flexible Home Loans. Apparently most banks in town was putting it on their brochures ranging from MortgagePlus (Hong Leong Bank) to HomeSmart from HSBC (Hong Kong & Shanghai Bank). Have you ever wondered what motivated banks to provide Flexible Home Loans?

Well, apparently back in the old days, when there’s nothing around but conventional home loans, there were quite a number of loan payers who actually had  spare cash lying around. Instead of using the spare cash to make prepayments to their home loan, they pretty much preferred to park their cash in fixed deposit earning measly interest rates.

So here’s the dilemma, on one side they are stuck with conventional home loans charging exorbitant interest rates (5-12%)* and on the other hand they have spare cash parked in Fixed Deposits/ Savings Accounts, earning measly interest rates (1-4%)*. You must be wondering, why don’t they just parked their spare cash in their housing loan account because “A dollar saved, is a dollar earned”

Well, as illogical as it may seem, these groups of people have the mentality that it is much better to have emergency cash in hand than to used up all their savings to offset their conventional home loan quantum. These groups of people feel safer knowing that emergency cash is easily available on rainy days. As such, they do not mind paying the extra interest for their conventional home loans. As the popular saying goes ” A bird in hand is better than two in the bush”.

With the plight of these people in mind, and of course the endless competition among banks to entice more customers, banks started rolling out flexible home loans. (Of course foreign banks took the lead first)

Flexible home loans promises the flexibility for you to deposit and withdraw, any amount, any time and as often as you may need. For example, you may bank in $10,000 into your loan account today and will still be able to withdraw it out the next day without incurring any charges.

Of course, you will still need to pay up your monthly mortgage payments and any additional balance in your loan account thereafter goes towards offsetting your loan quantum and as such your interest payable for that day.

Take this case study for example,

Home Loan Quantum = $100,000 and the Interest rate is 12%** per annum and for this case take customer A who has $20,000 sitting in his fixed deposit.

Case A: Conventional Home Loan 

Under conventional home loan with daily rest interest calculation, Customer A would have to pay a daily interest of

Daily Interest = Remaining Loan Quantum x (Interest rate/365 days) = $100,000 x(12%/365) = $32.88

Total interest accrued at month end = $986

Case B: Flexible Home Loan Concept

Daily Interest = (Remaining Loan Quantum - Amount in Account) x (Interest rate/365 days) =

                    = ($100,000 - $20,000) x(12%/365) = $26.30

Interest accrued at month end = $804

Total Interest Savings = $182

Interest earned if Customer placed $20,000 in Fixed deposit at 4% = $65.75

See the difference. Well that’s the flexibility of Flexible home loans. Basically, you can park all your extra cash into your home loan account and “earn” whatever interest rate that the bank is charging you for your home loan. Furthermore, you still enjoy the flexibility to withdraw your extra cash on rainy days. Now that’s what I call flexbility.

However, do note though that the interest rates for Flexible Home Loans, tend to be slightly higher than conventional home loans. Another thing to note is that not all banks offer the same level of flexibility in their “Flexible Home Loan”. Always shop around for the plan that suits your lifestyle the most.

Disclaimer :

Calculations were made using simple formulaes and may not be accurate. Kindly visit your friendly bankers to obtain a clearer illustration about flexible home loans, as different banks offer different packages and features.

* Interest rate range is based on the interest rate charges for the last 10 years in Malaysia. Interest rate varies with varying BLR.

** 12% per annum interest rate is chosen for ease of illustration. For the current interest rates for Home loans, kindly visit individual bank websites.

Here’s comes the next challenge. How do you go about financing your dream home?

Of course, the first thing that comes to our mind, would be banks.

Malaysia is very fortunate, in the sense that we have numerous banks (both local and foreign banks) who are more than willing to lend new home buyers a hand in realizing their dream house.

Furthermore these banks are competing with each other by offering its customers attractive interest rates, attractive features and all in all, a very attractive home loan package to lure you to sign up with them.

(and of course sell your poor soul to them for the next 30yrs or so :))

There are numerous loan packages that are offered by banks in Malaysia today. Most of which can be divided into 3 categories namely conventional home loans, semi-flexible home loans and flexible home loans. I’ll touch on conventional home loan packages today in my blog.

Before I go into describing the different packages, let me list down a few abbreaviations I will use as we go along

BLR  - Base Lending Rate - Interest rate as indicated by Bank Negara (Malaysia Central Bank) OPR rate. The current Base Lending rate as of Nov 1 stands at 6.75% per annum

OPR - Overnight Policy Rate

Conventional Home Loans

As the name suggests, these loans are really “conventional”. Basically you will pay a fix mortgage payment for the whole duration of your loan until the full principal amount has been paid up. For example, if you sign up for a RM300k loan for 30 years at 5.75% (BLR-1%), you will pay around RM 1,600 per month for the next 30 years.

Note though, “mortgage payment” here varies with the varying BLR rate. If BLR was to increase overnight by 1%, then the banks would happily sent you a new letter stating the new mortgage amount payable.

In Malaysia, and in many other countries of course, interest on the home loan is based on daily rest calculations. Daily rest calculation means the interest is calculated daily on the amount outstanding. Hence the more you pay the more you’ll save on your interest.

Through our months of scouring the market for the various types of loans from different banks, we discovered that usually conventional home mortgages or loans, tends to offer one of the best interest around. Some banks are even wiling to offer a starting rate of BLR-1.1% for conventional loans which is abt 5.65% per annum.

However, as the name suggests, these loan packages lack in flexibility. Don’t get me wrong, you can still make lump sum payments but these lump sum payments have to be subjected to the bank’s terms and conditions. Some of which are the need to give the bank a written notice in advance, restrictions on the prepayment amount allowable and also charges for prepayment withdrawals (ie withdrawing the extra paymetns which you have made)

Note though that some bank do offer the flexibility in mortgage payment by allowing you to make monthly, twice weekly, fortnightly or weekly payments for conventional home loans. This in turn helps to reduce on the interest chargeable as the more often you pay your mortgage, the lesser the interest chargeable will be.

Conventional home loans has it pros and cons. It is suitable for people who prefers the stability of paying their home loan in a fixed and timely manner every month.  

But then again what if, you are the fast rising young workforce whose salary doubles and triples every 5 years or if you have more than one income stream….then…. the flexible home loans may suit you better.

Look out for my next blog on Flexible Home Loan